Restrictive Covenants

Our specialist employment law team advise on employment contract restrictive covenants and in the case of breach of a restrictive covenant intended to prevent an employee or ex-employee from working for a competitor, poaching or stealing customers or clients or staff, it is often necessary to act urgently once a breach of the employment contract covenant becomes known.

Typically, it will be prudent to gather evidence and threaten an injunction against the employee or former employee. We have a wealth of experience in enforcing restrictive covenants in employment contracts, either by injunction, general court litigation or negotiation.

We can assist in this area by:

• drafting employment contracts with appropriate non-competition and non-solicitation clauses
• drafting and/or negotiating business sale agreements which commonly include restrictive covenants
• advising either employer or employee as to whether employment contract covenants still apply in respect of an employment dispute and regarding likely enforceability
• advising and representing either employer or employee in cases of alleged breach including preparing or defending injunction claims or  breach of contract damages claims

Why are restrictive covenants important ?

The inclusion and extent of restrictive covenants is an important consideration for inclusion in employment contracts and business sale agreements, particularly for senior employees or those who have intimate knowledge and contacts of a business in terms of confidential business information and sales.

As an employer, ask yourself a simple question. Will the individual possibly be in a position to damage our business success when they leave? If the answer is yes, deal with the problem when they join, not when they leave.

As with contract law generally, it is up to the parties to agree terms between them, but English law generally considers that with employment contracts there is unequal bargaining power, and the courts are therefore prepared to interfere with employment contracts by varying, reinterpreting or refusing to uphold certain clauses such as restrictive covenants, balancing the legitimate rights of the employer to protect it's business as against the fact that many restrictions can be a restraint of trade.

The key considerations for an employer to avoid any restrictive covenants proving unenforceable (see further below) are the reasonableness of the restrictions and the extent to which the employer can justify them.

Types of Restrictive Covenant

There are many different types of restrictive covenant, but the ones most commonly used, generally known as non-compete and non-solicitation covenants, are:

• Restrictions on working for competitors in the same industry for a defined period and within a defined geographical area
• Restrictions on approaching or seeking business from clients of your business
• Restrictions on an employee dealing with your clients even if they approach him or her
• Covenants preventing your employee from recruiting (poaching) other employees from your business

Validity of Restrictive Covenants

Not all restrictive covenants will be enforceable. If they are drafted too widely (for example seeking to restrict an employee from working for a competitor within a wide area and for over 5 years would generally be considered a restraint of trade) your employee may challenge them. As a general guide, you should be wary of seeking to restrict activities for more than 6 months and with a geographical extent which is wider than perhaps 5 to 10 miles at most. When finding that a covenant is unfair on an employee, a court can deem that covenant totally unenforceable or water it down.

What is garden leave ?

Garden leave clauses are commonly used in employment contracts in conjunction with restrictive covenants. Such clauses allow an employer to require the employee to spend all or part of his or her notice period (generally these clauses are inserted with notice periods of between 3 to12 months) at home, while continuing to receive salary and benefits. Such clauses are useful for employers as they create a time period during which the employee will not have contact with clients and colleagues or have access to confidential information, thereby reducing the risk of that employee damaging the employer when finally leaving. Garden leave clauses must be expressly agreed in the contract and are also subject to the test of reasonableness.

Enforcement of breach of restrictive covenants

Quite often with restrictive covenants an employer will not want to wait to test the enforceability of a restrictive covenant if allegedly breached since, as stated above, these covenants are generally included to avoid significant damage to the employer’s business. Quite commonly, the employer will, if it has evidence, strongly consider a pre-emptive and often decisive measure to threaten the former employee and possibly apply for an injunction to prevent further breach. The risks and legal costs associated with such action, both for employer and employee, make such action high risk for both.